sábado, 17 de dezembro de 2016

A group of intelligence experts, including a former head of MI6, has cut ties with fellow academics at Cambridge university, in a varsity spy scare harking back to the heyday of Soviet espionage at the heart of the British establishment.

Sir Richard Dearlove, the ex-chief of the Secret Intelligence Service and former master of Pembroke college, Stefan Halper, a senior foreign policy adviser at the White House to presidents Nixon, Ford and Reagan, and Peter Martland, a leading espionage historian, have resigned as conveners of the Cambridge Intelligence Seminar — an academic forum for former practitioners and current researchers of western spycraft — because of concerns over what they fear could be a Kremlin-backed operation to compromise the group.

Mr Halper said he had stepped down due to “unacceptable Russian influence on the group”.

The seminar, established by Christopher Andrew, the official historian of MI5 and former chairman of the history faculty at the university, is one of the most respected networks in its field.

Recent attendees at its discussions, held every Friday at Corpus Christi college, have included Mike Flynn, president-elect Donald Trump’s choice as US national security adviser, and Sir Simon Fraser, the recently retired permanent undersecretary at the Foreign Office.

Sir Richard and his colleagues suspect that Veruscript — a newly established digital publishing house that has provided funding to set up a new journal of intelligence and to cover some of the seminar’s costs — may be acting as a front for the Russian intelligence services.

They fear that Russia may be seeking to use the seminar as an impeccably-credentialed platform to covertly steer debate and opinion on high-level sensitive defence and security topics, two people familiar with their thinking said, speaking on condition of anonymity.

The Financial Times has been unable to independently substantiate their claims — and no concrete evidence has been provided to back them.

The three stepped down as conveners before the start of the Michaelmas term. Sir Richard confirmed his resignation as convener but declined to comment further. Mr Martland did not respond to a request for comment.

Their concerns come against a backdrop of growing paranoia about Russian subversion in the west. With relations between London and Moscow at their lowest ebb since the height of the cold war, Britain’s spy agencies are working overtime to try and counter Russian covert action in the UK.

A senior Whitehall security official said that while the authorities could not comment on specific investigations into covert Russian meddling, they were nevertheless aware that suspicions such as those flagged at Cambridge were “the kind of thing that we are aware of being of concern”.

Reliable evidence of Russia’s information war to back up such assertions has been in short supply, however. Indeed, the dispute at Cambridge revives uncomfortable memories of cold war fearmongering — and has sharply divided dons at the intelligence seminar.

While the febrile intellectual atmosphere at Cambridge in the 1930s — charged with radical new socialist thinking and invigorated by a fractious international environment — was an ideal recruiting ground for young, charismatic Soviet agents such as Kim Philby and Guy Burgess, whose work was the acme of cold war intelligence gathering, the modern academic milieu is a less obvious target for Russian espionage.

Prof Andrew, whose books on the KGB are among the most exhaustive on the history of Russian information warfare as well as the infamous Cambridge spy ring of the 1930s, said the suggestion of a Russian covert operation to compromise the seminar was “absurd”.

The seminar is “entirely unclassified” Prof Andrew pointed out, adding that the new Journal of Intelligence and Terrorism was not formally affiliated to the gathering.

Some of the academics the FT spoke to suggested that the dispute over the seminar might be tinged by an element of competition: Sir Richard and his colleagues who have departed from the seminar run a separate organisation — the Cambridge Security Initiative — which pursues a similar, though more commercially-oriented, agenda.

The CSI, which also holds regular briefings and discussions, counts Sir Iain Lobban and Sir David Omand, both former heads of the electronic surveillance agency GCHQ, as members of its advisory board.

Prof Andrew was co-chair of CSI alongside Sir Richard but resigned in the spring. He said his resignation was unrelated to any matters regarding Veruscript. All of the individuals the FT spoke to emphasised that they hoped the two organisations would have an amicable future relationship.

Neil Kent, the lead convener of the seminar and editor-in-chief of the new journal also stepped back from the CSI. Mr Kent, a linguist and expert in Russian culture, said it was “inconceivable” that the Russian government was in any way involved.

“Cambridge is a wonderful place of conspiracy theories but the idea that there is a Machiavellian plot here is ridiculous,” he said. “The idea any of us would be involved in anything that smacks of Russian influence . . . it’s real Reds under the bed stuff — the whole thing is ludicrous.”

Mr Kent is responsible for building the links between the seminar and the organisation at the centre of the controversy, Veruscript. It was established by a friend of Mr Kent’s from Cambridge, Gleb Cheglakov, a Russian physicist.

According to Mr Kent, the new journal will cost roughly £50,000 a year to run and, although start-up funding is being supplied by Veruscript, ultimately it will draw on other sources of finance, to ensure its independence.

Mr Kent said he did not know where Veruscript’s money came from.

Corporate records show Veruscript is run by a company called AGC Partners, based in London.

Mr Cheglakov told the FT that the company was set up by himself and his wife using their own money. The company, which boasts a slick website and employs about a dozen people, claims it will shake up the academic publishing business by paying for peer reviews of its articles by approved academics.

AGC Partner’s corporate records show it was established in 2012. Mr Cheglakov said he was its cofounder although it is legally fully owned by Nazik Ibraimova, his Kygryz wife. Ms Ibraimova could not be reached for comment. The FT attempted to reach the company a number of times by phone and email.

Corporate records show Ms Ibraimova initially funded the company with a series of £50,000 loans made in six-monthly increments. In the past year, the company has significantly expanded. Its accounts show a loss of £410,000 in 2015, the last year for which figures have been filed.

“As we are in start-up mode, all journals are currently operating at a loss with Veruscript picking up the costs,” Mr Cheglakov said in a statement. The business is looking to significantly expand, he added. “[We] will publish journals from across the research spectrum: sciences, humanities and social sciences . . . We are a truly community-based publisher. [The] Journal of Intelligence and Terrorism Studies is our first journal to launch but we are also in the process of launching journals in areas as diverse as Functional Nanomaterials, Quantum Matter and Energy Storage.”

Mr Cheglakov did not specifically address the question of any connection between the company and the Russian government.

He stressed that all of the journals backed by Veruscript would be completely editorially independent of the organisation. “We aim to be a force of good within the publishing industry,” he said.

sexta-feira, 18 de novembro de 2016

In a ranking of global financial centres last month, published by Z/Yen, London topped the think-tank’s league, a whisker above New York.

Little surprise there: London has led several league tables in recent years. But when Z/Yen publishes its index in a couple of years’ time — in a Trumpian world — there is a good chance those rankings will have changed.

For one point about last week’s US presidential election result is that Donald Trump’s policies are likely to make New York more attractive as a financial centre. And that could make London a relative loser — unless British authorities are ready to fight back.

Why? The reason is not necessarily any deliberate “plan” Mr Trump holds for Wall Street; he does not seem to have one. He barely mentioned the financial sector on the campaign trail — and most bankers ignored him back. Indeed, the industry donated only $737,000 to him this year, compared with $78m for Hillary Clinton and $33m for Jeb Bush.

But what could raise New York’s status is a confluence of four crucial factors.

The first is obvious: London’s future is being undermined by uncertainties unleashed by Brexit. In public, international bankers insist London remains highly attractive. This week, for example, Jes Staley, Barclays chief executive, pointed to its “gravitational pull”. But in private, senior bankers are preparing to move at least some of their activities when Brexit hits. And, while continental European centres such as Frankfurt and Paris are pitching to grab business, many senior bankers say America looks more attractive, given its infrastructure, talent pool and flexible labour laws.

“It is pretty unlikely anything like what we call ‘London’ could be replicated in the foreseeable future in one place in the EU,” Jon Cunliffe, deputy governor of the Bank of England, told the House of Lords last month. “But it already exists in New York.” Or as Mark Boleat, policy chairman of the City of London Corporation, observes: “The biggest beneficiary of any job losses in the UK will be New York.”

However, Brexit is not the only factor here; a second is the regulatory and political climate. A decade ago Michael Bloomberg, then New York mayor, commissioned a McKinsey report that concluded London was grabbing business from New York because it had a more welcoming regulatory climate.

No longer. Since the 2008 crisis British regulators have, quite rightly, implemented reform. Bank levies have been imposed amid a political backlash. Of course, regulation has been tightened in America too; look at the hefty Dodd-Frank rules. But in America the bank-bashing has waned. And now Mr Trump’s policy team are not only muttering about rolling back some reforms; they are also considering bringing bankers into the administration. Jamie Dimon, head of JPMorgan Chase, has been mooted as possible Treasury secretary. The symbolism is profound.

A third factor is the health of banks. In recent years American banks have cleaned up their balance sheets and recapitalised themselves. The Europeans have lagged behind, which means American banks are resurgent on the world stage. This is likely to be magnified if Mr Trump loosens regulations. If the Federal Reserve raises rates next month — and Janet Yellen, Fed chair, hinted on Thursday that it would — that would bolster US banks’ fee income.

The US economy is likely to grow, partly as a result of Mr Trump’s reflation plans, which could in itself provide a fourth supportive factor. After all, rising business confidence and activity typically boosts demand for financial services. In Europe, by contrast, economic gloom and intractable political splits have undermined confidence.

“Anything which can move to the US in the coming years will move — the US is ultimately going to be a huge beneficiary,” Gary Cohn, Goldman Sachs president, said this week. “As far as [financial and business] investment in Europe is concerned, that is going to be on hold.”

Of course, some European observers will dismiss this as a self-interested sales pitch. If Trumpian policies spark US social unrest or geopolitical uncertainty, or if Mr Trump unleashes a debt binge that goes bust, that will not create stability.

But, while those risks are real, the crucial point now is this: whatever Europeans think of Mr Trump, they need to recognise that animal spirits are rising in New York, and this is likely to boost finance and the standing of Wall Street. If London wants to fight back, the British authorities need to find a way to unleash some animal spirits of their own. Bickering about Brexit is not a good place to start.

quarta-feira, 16 de novembro de 2016

Australia is throwing its weight behind China’s efforts to pursue new trade deals in the Asia-Pacific region amid a growing acknowledgement the US-led Trans-Pacific Partnership agreement is dead in the wake of Donald Trump’s election victory.

Steven Ciobo, Australia’s trade mininister, told the Financial Times that Canberra would work to conclude new agreement among 16 Asian and Pacific countries that excludes the US.

He said Australia would also support a separate proposal, the Free Trade Area of the Asia-Pacific, which Beijing hopes to advance at this week’s Asia Pacific Economic Co-operation summit in Peru.

“Any move that reduces barriers to trade and helps us facilitate trade, facilitate exports and drive economic growth and employment is a step in the right direction,” Mr Ciobo said Wednesday.

Mr Trump put opposition to the TPP, which the US and 11 other countries agreed to this year, at the heart of his presidential campaign and his election has all but killed the prospects of its ratification by the US Congress. This has offered Beijing, which was excluded from the pact, an opportunity to argue for faster adoption of the broader FTAAP, a move foreign policy analysts say would strengthen China’s influence in the region.

Australia’s decision to back China’s vision comes amid soul-searching in Australia about the impact a Trump presidency will have on its long-established military and strategic alliance with Washington.

On Wednesday the opposition Labor party said Mr Trump’s election marked a “change point” requiring a careful consideration of Australia’s foreign policy and global interests. It is calling for more engagement with Australia’s Asian partners, although the party says the US-Australian alliance is bigger than any one person and will endure a Trump presidency.

Malcolm Turnbull, Australia’s prime minister, has reassured the public that the alliance will continue under Mr Trump. After phoning the billionaire to congratulate him on his election victory, Mr Turnbull told reporters Mr Trump would view the world in “a very practical and pragmatic way”.

Australia’s military alliance with the US dates back to 1951 when both countries signed the Anzus treaty, along with New Zealand. However, Australian troops have fought alongside US forces in every major military conflict since the second world war.

James Curran, a professor at Sydney University and author of a new book on the Australia-US alliance, said the elevation of Mr Trump to the White House would test the alliance but would survive his presidency.

“Labor's call for a rethink shows they might finally be rediscovering the foreign policy tradition of the Whitlam, Hawke and Keating era, which stressed greater freedom of movement for Australia within and at times without the alliance,” he said. “The apocalyptic view that the alliance will fall apart is alarmist.”

Mr Ciobo said he would not comment on whether US failure to ratify the TPP would undermine Washington’s influence in the region. He said he had sought a bilateral meeting with the US trade representatives at the Apec meeting in Peru to advocate ratification of the TPP.

“Australia does not shy away from being an advocate about the multitude of benefits that flow from liberalising trade,” he said. “If the TPP does not come into effect it will mean there will be higher barriers to trade, which of course means you have a more subdued trading environment.”

terça-feira, 15 de novembro de 2016

The only reliable guide to the dollar’s value in the wake of Donald Trump’s electoral victory is the wisdom of legendary investor Bernard Baruch about the stock market: it will fluctuate. If the prospects for the US economy have never been so uncertain, then the prospects for the dollar similarly have never been so uncertain.

Still, we can attempt to make sense of this scenario from three angles. A first is from the vantage point of US fiscal and monetary policies. One thing we know is that a more expansionary fiscal policy is coming. It may take the form of tax cuts for the wealthy and tax credits for investors; or it may be a more balanced programme, including a significant rise in infrastructure spending.

Either way, growth and inflation are likely to accelerate, and the US Federal Reserve will respond by raising interest rates sooner and faster. We know from the Reagan era that a mix of loose fiscal and tight monetary policies makes for a strong dollar. No surprise, then, that investors are bidding up the greenback.

But we also know that doubts about debt sustainability can lead those investors to think twice. Large, unfunded tax cuts will heighten their doubts. Questions about fiscal sustainability will be particularly troubling to investors in US Treasury bonds, given Mr Trump’s offhand comments about renegotiating the debt.

Thus the macroeconomic policy mix should be dollar supportive in the short run but dollar subversive in the longer term. If markets are myopic, then the dollar will continue to strengthen for the moment. But if investors look forward, that moment will be relatively brief. Anyone care to bet on its duration?

A second perspective flows from the likelihood that the new administration will adopt protectionist policies. Taxing and otherwise discouraging imports will strengthen the US trade accounts, and a smaller trade deficit will be dollar positive. The increased price of imports will translate into modestly higher inflation, again encouraging the Fed to raise interest rates sooner and enhancing the appeal of dollar-denominated assets.

But those same trade policies run the risk of provoking foreign retaliation, with precisely the opposite effect. New tariffs will also reduce the efficiency of US production by disrupting global supply chains. If the result is slower growth, investing in the US and the dollar will be less attractive. Hence the new administration’s trade policies are likely to be dollar positive in the short run and dollar negative in the longer term.

A third perspective is the dollar’s haven status. The greenback benefits from uncertainty. Even when the US is the source of the problem, its currency benefits. The US Treasury market is the most liquid financial market in the world, and there is nothing investors value more in a crisis than liquidity. Thus some will argue that heightened uncertainty from Mr Trump’s accession to power will benefit the dollar.

This view fails to appreciate the deeper roots of haven status. These go beyond deep and liquid markets. The policies of the central bank issuing the currency and the government standing behind it must also be sound and stable.

A currency is regarded as a haven only if the country issuing it is geopolitically secure. It must have a strong military but it also must have strong alliances. The pound was the haven currency before the dollar because Britannia ruled the waves and because Britain successfully constructed a web of geopolitical alliances.

So whether Mr Trump adopts policies that heighten trade tension with China, scales back US foreign commitments and turns his back on Nato will tell the tale. The fate of the dollar, and potentially much more, will turn on the answer.

Barry Eichengreen is professor at the University of California, Berkeley, and the author of ‘Exorbitant Privilege’

Will Donald Trump benefit the enraged white working class that brought him into the White House? To answer this, one must examine his plans and the desires of congressional Republicans. One must also consider how these plans might affect the world economy. The conclusion is straightforward: some people will indeed benefit but the white working class will not be among them. Republicans have long stoked rage they do not assuage. Mr Trump has taken this approach in new directions.

Huge, permanent and regressive tax cuts seem the one certainty. It is something on which Mr Trump and congressional Republicans agree. The revised Trump plan would reduce the top individual income tax rate to 33 per cent and the corporate tax rate to 15 per cent. It would also eliminate the estate tax. The highest-income taxpayers — 0.1 per cent of the population, those with incomes over $3.7m in 2016 dollars — would receive an average cut of more than 14 per cent of after-tax income. The poorest fifth’s taxes would fall by an average of 0.8 per cent of taxed income. To those who hath, it shall be given.

Mr Trump (much less so the congressional Republicans) plans to increase infrastructure spending. This is desirable, though it would have made even more sense if Republicans had supported such a programme in the midst of the Great Recession. But as noted by Lawrence Summers, former US Treasury secretary, the Trump plan relies mainly on private investment. Experience elsewhere suggests this often leads to exploitation of taxpayers and a failure to put into effect public investments that deliver high social benefits but have limited commercial returns.

The net effect of these plans would be a large rise in fiscal deficits. Calculations by the Tax Policy Center at the Brookings think-tank suggest that by 2020 the deficit would increase by 3 per cent of gross domestic product. With current forecasts as the baseline and ignoring any additional spending, this would mean a deficit of around 5.5 per cent of GDP in 2020. Cumulatively, the increase in federal debt by 2026 might be 25 per cent of GDP.

Congressional Republicans such as Paul Ryan would surely demand matching cuts in spending. Annual federal outlays are close to 20 per cent of GDP. Spending on health, income support, social security, defence and net interest absorbed 88 per cent of this in 2015. Elimination of spending on all else (a catastrophic mistake) would merely halve the prospective deficit. In sum, the plan’s logic leads towards either big increases in federal debt relative to GDP or sharp cuts in spending on programmes on which Mr Trump’s supporters depend.

The envisaged rise in US fiscal deficits would however be expansionary, even though the concentration of the cuts on the wealthiest would limit this effect. Still, a jump in US fiscal deficits would accelerate rises in US short-term interest rates. Mr Trump could hardly complain since he has attacked the Federal Reserve’s low rates. Yet, as Desmond Lachman of the American Enterprise Institute notes, the world economy is fragile. A swift rise in US interest rates might destabilise it.

Furthermore, the combination of fiscal loosening with monetary tightening would mean a stronger dollar and a rising current account deficit in the medium term. The US would re-emerge as the global buyer of last resort, so helping the world’s structural mercantilists: China, Germany and Japan. A strong dollar and rising external deficits would, as in the early 1980s, increase protectionist pressures — Ronald Reagan’s administration was quite protectionist in its first term. The decision to launch the Uruguay round of multilateral trade negotiations to liberalise world trade was then the response.

This time, however, a strong dollar would reinforce the bias towards protectionism of the Trump administration. But protection against imports would raise the currency’s value further, shifting the adjustment on to unprotected sectors — above all, on to competitive exporters. In all, a strong dollar must weaken the manufacturing Mr Trump seeks to help.

A likely response would be to cajole the Fed into slowing monetary tightening. Janet Yellen’s term as Fed chair expires in 2018. Her successor could be told that the 4 per cent growth mentioned by Mr Trump has to be attained. The last time such growth was achieved over a five-year period was before the crash of 2000 — an ominous warning. If the Fed tried to achieve this goal, it might trigger inflation, financial instability or, more likely, both. In all this there seem to be few, if any, gains for Mr Trump’s working-class supporters.

The president-elect has also promised to eliminate Obamacare and most environmental and financial regulations. It is hard to believe any of this would succour the prospects of the working class. They are more likely to suffer from even worse health cover, a dirtier environment, more predatory behaviour by financial institutions and, at worst, even another financial crisis. Protectionism, too, will fail to help most of his supporters. Many depend on cheap imported goods. Many would be badly hurt by the dire results of a tit-for-tat global trade war. Meanwhile, rapidly rising productivity would still ensure a steady fall in the share of manufacturing in US employment, despite protection.

Mr Trump promises a burst of infrastructure spending, regressive tax cuts, protectionism, cuts in federal spending and radical deregulation. A big rise in infrastructure spending would indeed help construction workers. But little else in these plans would help the working class. Overall, his plans might indeed generate a brief economic surge. But the longer-term consequences are likely to be grim, not least for his angry, but fooled, supporters. Next time, they might be even angrier. Where that might lead is terrifying.

segunda-feira, 24 de outubro de 2016

The German government has withdrawn approval for the €670m takeover of chip equipment maker Aixtron by a group of Chinese investors, amid concern in Berlin about China’s growing appetite for German industrial companies.

Matthias Machnig, deputy economics minister, told newspaper Die Welt that the government had decided to take back the clearance certificate it had issued last month and reopen a review of the deal after receiving “previously unknown security-related information”.

By late afternoon on Monday, Aixtron’s shares had fallen 13 per cent to €5.00 in Frankfurt, less than the €6 per ordinary share takeover offer from Fujian Grand Chip Investment Fund, which is controlled by the Chinese businessman Zhendong Liu. Management has already recommended the offer and, by last week, some 65 per cent of shareholders had accepted it.

The decision reflects a growing protectionist backlash against Chinese investment in Germany. Sigmar Gabriel, the economics minister and deputy chancellor, has already backed a proposal to restrict foreign takeovers of EU companies if they involve “key technologies that are of particular importance for further industrial progress”.

However, even under current rules, the economics ministry can review any deal where non-EU investors acquire at least 25 per cent of the voting rights of a German company, and block it if it “poses a threat to Germany’s public order or security”.

Deals that involve “security of supply in the event of a crisis, telecommunications and electricity, or the provision of services of strategic importance” can come in for particular scrutiny, the ministry says on its website.

Mr Gabriel’s initiative, which would greatly expand the government’s oversight of these and other deals, is supported by Günther Oettinger, the EU’s digital economy commissioner and a close ally of Chancellor Angela Merkel.

He said in a newspaper interview earlier this month that Europe’s high-tech industry “should not just be sold off”, adding that other big EU member states such as France and Italy also backed a “stronger industrial policy” to protect homegrown tech companies.

Other countries have also grown more sceptical of Chinese investment. In January, Go Scale, a Chinese private equity firm, was blocked from buying Lumileds, Philips’ lighting business.

German concerns over Chinese takeovers have been rife since Midea, a Chinese appliance maker, bought German robotmaker Kuka — one of the country’s most innovative engineering companies — earlier this year for €4.5bn.

Ministers tried and failed to drum up an alternative bid from a European rival, while Ms Merkel complained about a lack of reciprocity on the part of the Chinese, pointing to the tough restrictions Beijing places on investments by German companies.

Germany has become the top destination for Chinese dealmaking in Europe in recent months. Transactions with a record value of $10.8bn were announced in the first half of this year, according to EY, the professional services firm. Chinese investors acquired 37 German companies in that period, compared with 39 in the whole of 2015.

A further sign of Chinese interest in German companies came earlier this month when San’an Optoelectronics announced it had held talks with Osram on a possible acquisition of the German lighting and semiconductor company. San’an is one of two potential Chinese bidders for Osram, which was spun off from Siemens in 2013. Go Scale has also held talks with Osram in the past few weeks, according to people close to the discussions.

sexta-feira, 16 de setembro de 2016

Russia’s dark art of disinformation

Speaking at the Kremlin in December 2014, Vladimir Putin explained that bears might prefer a quiet life, eating berries and honey instead of chasing piglets, but no self-respecting bear should let its enemies rip out its claws and fangs. Among the bears for which the Russian president’s remarks were sure to have held singular resonance was Fancy Bear.Fancy Bear is a Russian cyber­espionage group that the World Anti-Doping Agency holds responsible for hacking into its computer systems and publishing the confidential medical data of US and European athletes. Another tech-savvy denizen of the Russian forest that likes to show its claws is Cozy Bear.According to CrowdStrike, a California-based cyber security company, the two bears were responsible for separate attacks on Democratic National Committee servers that disrupted this year’s US presidential race.Despite Russian government denials of involvement in these two incidents, CrowdStrike suspects that Fancy Bear is affiliated with the GRU, Russia’s military intelligence agency, and that Cozy Bear may be connected with the FSB, successor to the KGB, the Soviet spy service. The two bears do not appear to co-ordinate their cyber attacks on the US and its allies. But the nature of their targets indicate that the bears dance to a powerful state’s tune.Fancy Bear and Cozy Bear are almost certainly examples of a rich and highly distinctive tradition of Russian subversion that dates to before the first world war. This includes forged documents, false news stories planted in foreign media, front organisations and, in our times, government-backed social media trolls and fake websites.Naturally, when it comes to hacking and related clandestine operations, other governments are no babes in the woods. For example, China and Russia tout their friendship, but Chinese hacking of Russian institutions and companies has increased this year, according to security experts in Moscow.As for forgeries, a notorious 20th century case, the Zinoviev letter of 1924, had nothing to do with Soviet intelligence. The document purported to be a letter to the UK Communist party from Grigory Zinoviev, the Soviet international propaganda chief, encouraging subversive acts. British intelligence passed it to the Conservative party, from where it arrived at the Daily Mail. The Mail published it on the eve of the 1924 election, which the Tories proceeded to win by a landslide — although their victory owed little to the scandal.Nowadays, historians think that the letter probably originated with anti-Soviet White Russian exiles in Berlin or Riga. However, another spectacular forgery — The Protocols of the Elders of Zion — seems to have been concocted by the Paris-based head of the foreign branch of tsarist Russia’s secret police. The Protocols, which makes wild allegations of a Jewish plot to rule the world, was first published in Russia in 1903 and nourishes global anti-Semitism to the present day.The Soviet Communist party and KGB had a kind of colour scheme for subversive measures. The KGB’s Service A conducted “black propaganda” (forgeries and rumours); the party’s international information department handled “white propaganda” (stories in the official Soviet press); and the party’s international department took care of “grey propaganda” (clandestine radio broadcasts and front groups).From the 1960s until the late 1980s, all sorts of lies were sown in western countries and the developing world. The KGB spread a rumour that a rightwing conspiracy was behind President John Kennedy’s assassination in 1963. In a deception codenamed Operation Infektion, a letter appeared in a pro-Soviet Indian newspaper in 1983 alleging that Aids was the result of Pentagon biological weapons programmes. In 1985 the disinformation campaign moved to Literaturnaya Gazeta, a Soviet literary weekly, from where it spread to non-Communist countries, damaging America’s image. After the Soviet Union’s collapse, Yevgeny Primakov, a former foreign intelligence chief, confirmed that the KGB had set up the whole operation.A comparable example involving Mr Putin’s Russia is the false story in January that asylum-seekers had raped the 13-year-old daughter of a Russian immigrant family in Germany. This tissue of lies, first reported on Russian state television, stirred up ethnic Russians in Germany just when public opinion was on edge because of the tide of refugees entering the country.Rather than pure aggression, retaliation often seems to be behind Russia’s dark arts. The hacking of Wada was probably a tit-for-tat move for the ban on Russian athletes at the Olympics that followed Wada’s disclosures of state-sponsored doping. The DNC hacking may reflect the Kremlin’s perception that the US had a hand both in the 2011 anti-Putin protests in Russian cities and in the 2014 Ukrainian uprising.Whatever their motives, Fancy Bear and Cozy Bear seem in no mood for a diet of berries and honey.

quinta-feira, 15 de setembro de 2016

Why on earth would anyone buy a bond that yields a negative interest rate? That is the $12.6tn question gripping global markets as the pile of negative yielding bonds mounts. If you ask investors, they typically offer two replies: “desperation” (they cannot think of anywhere else to park their funds) or “regulation” (they have to buy bonds to comply with financial supervision rules or investment mandates).But there is a third explanation: some investors have found ways to make those negative yields pay — and not just through traders “churning” bonds to generate commission.The real cause is that government intervention to reinvigorate stagnant economies has left markets so peculiarly distorted that there is potential for canny alchemy — and profits.For one example of this, look at dollar-yen cross currency swaps. This rather esoteric corner of finance normally goes unnoticed by the wider world. But right now there are two reasons it merits greater attention.First, the Bank of Japan will publish on September 21 a hotly anticipated report about the impact of negative rates. Second, it is evident that recent developments in this swaps market have been bizarre.The issue at stake is the spread — in effect, the cost of converting short-term yen contracts into dollars. Three decades ago, this spread was around zero, since demand for dollars and yen was evenly balanced. But when the Japanese financial crisis erupted in 1997-98 the country’s banks grew increasingly stigmatised and the one-year spread widened to minus 35 basis points, meaning in effect that anyone converting yen into dollars paid a penalty.After 1999, the spread returned to zero. It has subsequently widened twice at points when financial crises have sparked a global dash into dollars. In 2008 it hit minus 70bp; and in 2011 during the eurozone debt crisis it touched minus 50bp.In between, the spread shrank — as you would expect when markets are calm and functioning normally.What is peculiar now, however, is that since 2015 that spread has widened and stayed at that level, hitting minus 70bp for one-year swaps. That is in part because Japanese institutions are keen to get hold of dollars, to enable them to buy assets that might produce a return at a time when yen rates are negative.Another factor is that the US is reforming its money market rules, which is reducing funding to dollar markets. To make matters worse, emerging market countries want dollars in order to repay loans. The run of persistently wider spreads hurt the profits of Japanese banks and life assurance groups.But it also creates a big opportunity for dollar-rich institutions around the world, from Pimco, one of the world’s biggest bond houses, to Chinese sovereign wealth funds.So what many of these dollar-rich institutions are doing is cutting deals in this cross-currency swaps market, giving counterparties dollars in exchange for yen — and then using that yen to buy short-term bonds.At first glance, it might seem like a bad idea to buy those yen bonds. After all, short-term bonds have negative yields (currently about minus 25bp). But the crucial point is this: the yen loss is more than offset by the dollar gain, meaning that there are profits to be made even by holding negative bonds. So it makes sense that foreigners are piling in. Chinese purchases of Japanese bills reached a record cumulative ¥10tn in June, according to Bloomberg .Now, if you want to be optimistic, you might say that this tale simply shows that central bank actions are working: if Chinese and US investors keep buying short-term yen bonds, that will keep yen rates low.This should — in theory — provide stimulus to the wider economy, by encouraging more borrowing. However, if you want to be more cynical about whether negative rates really work (as I am), you could also point out that these market dislocations have become so perverse that they are sapping confidence in a self-defeating way.Either way, the question is what — if anything — the BoJ will do next. My own guess is nothing much; these dislocations have become so deeply ingrained in the markets that investors (and policymakers) seem almost inured.But if you are ever tempted to wonder about those negative rates, ponder on the alchemy behind this peculiar yen-dollar tale. If nothing else, it should remind us how strange our financial system has become — and the shocks that might occur if, say, yen rates suddenly returned to normal.

terça-feira, 13 de setembro de 2016

The Swiss still refer to the day of the “Frankenschock”.On January 15 last year, their stable economic lives were shattered by news the Swiss National Bank had abandoned its cap on the super-strong franc’s value against the weak euro. To deter investor inflows, the central bank instead pushed its main policy interest rate even deeper into negative territory — to minus 0.75 per cent.But if the Swiss feared the sky over the Alps would be brought down by upside-down interest rates, dysfunctional banks and a soaring currency, they were wrong.Almost two years later, the affluent Alpine state’s financial system still functions despite the most negative interest rates in the world; markets clear; savings are kept in bank accounts rather than under mattresses; dark-suited bankers still manage to dodge the trams rattling across Zürich’s Paradeplatz as they go about their business.Indeed, Swiss banks’ profits are perky.The Swiss Bankers Association last week reported their net income rose 5 per cent last year to SFr64.6bn — the highest since before the 2008 global financial crisis. Remarkably, for the first time in a decade, net income from interest-earning lending businesses overtook commission-based and service activities as the most important driver of profits.So is Switzerland an example of how negative interest rates can work? Does it offer lessons for other financial markets, including the UK, where official interest rates may yet “go negative”? The answer to both is “yes” — but maybe only in the short term.The SNB — which holds its latest monetary policy meeting on Thursday — can claim its policies have succeeded. After the immediate “Frankenschock”, the currency weakened and has remained within acceptable ranges, although the central bank has also intervened heavily in foreign exchange markets.Controlling the franc was the SNB’s main objective — not providing an economic stimulus as is the case at other central banks. In Switzerland, there was no need: although annual inflation remains negative, the Frankenschock did not tip the country into recession last year. In the second quarter of this year, gross domestic product expanded 0.6 per cent — the fastest pace since late 2014.What is more, Switzerland shows the financial system can adapt to a world below zero. Swiss banks knew imposing negative interest rates on ordinary retail customers would risk a disastrous bank run. So they looked elsewhere to compensate for the cost of providing deposit accounts — namely, the mortgage market.Expanding mortgage loan books, increased margins on lending businesses, as well as lower refinancing costs, explain why Swiss banks remain so profitable.But the “success” of negative interest rates in Switzerland has depended on local factors — most obviously a buoyant-yet-disciplined mortgage market. There is no talk here of “negative mortgages” — whereby banks would pay homeowners.Swiss residential mortgage rates actually rose after the Frankenschock, before falling again. UK banks would be pilloried if they reacted to aggressive action by the Bank of England by hiking borrowing costs for homeowners.Moreover, the equilibrium is fragile.If the SNB pushed interest rates further into negative territory, it could quickly become unstable, especially if the mortgage market spluttered. Foreign competitors could attack the relatively juicy margins in the domestic bank market, and Swiss banks might be forced to impose charges on retail customers. Inquiries from Swiss companies about insuring cash held in safe deposits rather than in bank accounts have increased significantly, Zurich Insurance reports.Even if the equilibrium is maintained, Switzerland has not found a way of avoiding the pernicious long-term effects of exceptionally low interest rates on the pensions and insurance industry, which worry investors worldwide.Rather, the public debate about the creeping distortions created by negative rates grows louder. The commentary in Swiss media is about whether it really would be more damaging to the Swiss economy if the SNB returned to positive official interest rates. Worries remain that negative rates could yet cause the sky to fall in.

quarta-feira, 13 de julho de 2016

US shale reserves are the lowest-cost option for future oil production and are likely to attract more investment than competing projects such as deepwater fields, according to a leading industry adviser.About 60 per cent of the oil production that is economically viable at a crude price of $60 a barrel is in US shale, and only about 20 per cent is in deep water, said Wood Mackenzie, the consultancy.Companies with US shale assets are likely to be at a competitive advantage over the next few years. Producers that rely on oilfields in higher-cost regions such as the North Sea and the deep waters off west Africa will have to cut costs or face shrinking output.After the oil price plunge that began two years ago, production costs have been cut across the industry, but far more so in US shale.Average costs per barrel have dropped by 30 to 40 per cent for US shale wells, but just 10 to 12 per cent for other oil projects, said Simon Flowers of Wood Mackenzie.US shale regions that two years ago were in the middle of the cost curve for future oil supplies are now down towards the lower end.Investments in the Eagle Ford shale of south Texas on average need a Brent crude price of $48 a barrel to break even, on Wood Mackenzie’s calculations, while projects in the Wolfcamp formation in the Permian Basin in west Texas need $39.“There are more opportunities to invest in the US, and that’s where the investment will take place,” said Mr Flowers.“If your investment options are in deep water, you’ve got quite a task on your hands. You might be asking: ‘Should we be getting into tight [shale] oil?’”Brent was trading at $47.59 per barrel on Wednesday.US companies that have shale oil reserves, including Chevron and ExxonMobil, have stressed the flexibility of those assets, which are developed with many wells costing a few million dollars each, rather than the multibillion-dollar projects often required for offshore production.On Wood Mackenzie’s calculations, Brazil’s deepwater oilfields are so large that some will be commercially viable, but higher-cost regions could struggle to attract investment.The number of large projects being given the go-ahead by oil and gas companies averaged 40 a year between 2007 and 2013 but dropped to just eight last year, according to Angus Rodger, also of Wood Mackenzie.Although there has been a small flurry of investment decisions in the past few weeks, including the Chevron-led $36.8bn expansion of Tengiz in Kazakhstan, Mr Rodger expects only about 10 new big projects will go ahead this year.While the economics of US shale are generally more attractive, Mr Flowers said the time taken to mobilise finance and workers to increase drilling and production meant that global demand could outstrip supply in a few years. That could drive oil prices to $80 to $85 per barrel in 2019-20, he added.